Lord McIntosh of Haringey: When I first came to this House I was shocked by the phrase, current at the time, and which is still heard from time to time, "The noble Lord has shot my fox". I think noble Lords opposite have shot their own fox on this occasion. They have carried amendments that make the employer's role in tax credits much more optional than before. They have cut out the smallest employers from the tax credit system and they have carried an amendment which would introduce an option for lone parents. The arguments that they repeat are based on the Bill as it was, and as the Government wish it to be, rather than the Bill as amended so far.

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As the noble Lord, Lord Goodhart, recognises, the tax system does not provide, and never has provided, for a direct subsidy or compensation to employers who fulfil their obligations in relation to tax. Employers are not reimbursed for operating the PAYE system. It would be hard to justify making an exception for employers who pay tax credits to their employees. That is something that they will do alongside, although not integrated with, their PAYE responsibilities.

I am sorry that I am unable to reply to Amendment No. 36. The Liberal Democrat Front Bench was vacant at the time. I had prepared some lovely replies to an amendment which talked about a percentage without specifying that percentage. However, I shall have to concentrate on Amendment No. 37.

Lord Goodhart: Omitting the percentage figure was a generous gesture to the Government, which left them entirely free to specify the appropriate percentage in regulations.

Lord McIntosh of Haringey: I noticed that the noble Lord rushed into the Chamber when he realised that his party was less than properly represented by its official spokesmen. I am grateful to the noble Lord for his generous gesture.

Amendment No. 37 is similar to Amendment No. 36, but would restrict compensation to employers whose annual National Insurance contributions payments do not exceed £25,000. They will tend to be small employers and, of course, they will incur some costs. We have covered that ground fairly thoroughly. The same arguments against paying compensation apply to such employers just as much as to other classes of employer.

Tax credits are part of the tax system and the same rules apply here as for other aspects of tax administration. Compensation is not paid to employers who comply with their tax obligations. To change those rules here and to provide compensation would be the thin edge of the wedge. We would start to have claims for compensation for different classes of employer and different classes of obligation which have been accepted, as the noble Lord, Lord Goodhart, reminded us, for more than 50 years.

The compliance costs to employers of paying tax credits will, of course, vary according to the payroll system used, but I should remind the Committee, as my noble friend Lady Hollis has already, of the many measures that this Government have introduced to help smaller companies. The 1999 Budget included a substantial package of improved support for small business, including the creation of a small business service, a range of new and improved services from the Inland Revenue and Customs and Excise, including a new business guide, a business tax starter pack and guidance for new employers, and a new helpline service for new employers offering fast-track support.

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The Budget featured a number of measures designed to promote the use of IT by small businesses, including the publication of a clear national standard for payroll systems software, to help in tax returns and a discount on returns filed via the internet.

The Budget also raised the threshold for quarterly payments of PAYE tax from £600 to £1,000 a month, thus extending the quarterly scheme to an additional 130,000 employers, who could save up to £100 a year. The Government have lowered the small companies tax rate twice since May 1997. Then it was 23 per cent and now it is 20 per cent.

From April 2000, as the Chancellor also announced in the Budget, there will be a new 10 per cent rate, the lowest rate of corporation tax for small companies among major industrialised countries. Since 1997 the Government have abolished advance corporation tax, bringing a £1 billion cash-flow advantage to business. Many small businesses will benefit from that. Enhanced capital allowances for small companies have been in place since July 1997 and will extend until July this year.

This is an impressive record of help for small businesses and the Government will continue to look for ways to keep down the compliance costs of small businesses. However, to interfere with the tax system in this way and to provide, for the first time, a direct subsidy to employers who fulfil their obligations in relation to tax, seems to us to be entirely inappropriate. I hope that the noble Lord will not seek to press the amendment.

Lord Astor of Hever: I am grateful to the Minister for that reply. In fact, I have never actually shot a fox; we on this side have not shot our fox.

This is a matter of great concern for small firms, many of whom have been in touch with me. We may want to return to it at Report stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 38 and 39 not moved.]

Lord Goodhart moved Amendment No. 40:

Page 4, line 14, after ("which") insert ("shall in the case of the first regulations made under any subsections of this section be made only if a draft of the regulations has been laid before, and approved by a resolution of, each House of Parliament and in the case of subsequent regulations")

The noble Lord said: As we have heard at considerable length throughout the passage of this Bill, payment through the employer of tax credits, in the Government's view, is the central provision of the Bill. Clause 6 leaves all the details of those payments to regulations. Those regulations, therefore, are of the utmost importance. They define which employers have to pay credits; they say when the obligation to pay starts and stops; they say how the employer and employee are notified and what amounts are due. The regulations say how the payments are to be funded and provide for the funding to be paid to the employer by the Inland Revenue if they cannot be funded by an offset against

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the PAYE and NICs deductions which are to be made by the employer. The regulations provide for the inspection of the employer's records.

These regulations were rightly described by the Select Committee on Delegated Powers and Deregulation, of which I am a member, in paragraph 16 of our 12th report as,

"a wide-ranging power with considerable administrative and financial implications for employers, including small employers".
The Select Committee said that this Chamber might wish to consider whether the Bill should be amended to provide for the affirmative procedure to apply on the first occasion that the power is exercised. That seemed to be a modest and reasonable proposal. I do not suggest that the affirmative procedure should be used whenever the regulations are changed, because there is no doubt that regulations will need to be changed from time to time and frequently in ways which would make the affirmative resolution procedure inappropriate. But it is a different matter in the case of the first set of regulations. Of course, we have now seen the draft regulations. They are clearly important and very substantial.

The Inland Revenue's response to the report of the Select Committee was distinctly negative. It said that the negative resolution procedure was normal in the tax system. That is true. But it is also true that far more goes into primary legislation on tax matters than on benefit matters. The Inland Revenue also says that the similarity of procedure to PAYE argues that the same procedure should be used for these regulations. Surely that is not a sufficient argument. There are important differences; and even if there are not, the importance of this issue would justify special treatment of these regulations.

The Inland Revenue refers to the extensive consultation which it has held with representative groups and proposes seeking further comments on the draft regulations. That surely reinforces the argument for the affirmative resolution procedure. If the regulations are recognised as being important enough to require extensive consultation, surely your Lordships' Chamber should have the right to debate them as a matter of course. The attitude of the Inland Revenue shows that there is a problem of differences of culture between the Inland Revenue and the Department of Social Security. The Inland Revenue is not used to dealing with benefits and wants to stick to procedures which are appropriate to taxation but not to benefits. I therefore ask the Government to reconsider their rejection of the proposal in this amendment. I beg to move.

6.15 p.m.

Lord Higgins: I am far too junior in this Chamber to be a member of the Select Committee on Delegated Powers and Deregulation, but the point made by the noble Lord, Lord Goodhart, who is a member of that committee, is a fair one. After all, the committee is concerned that delegated powers should not be used unreasonably and when it fears that they are in danger of being nodded through too easily, makes appropriate recommendations to the House. As the noble Lord pointed out, that was the case in relation to some of the regulations which seek to implement this Bill.

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Amendment No. 40 is a modest amendment. It does no more than say that such regulations should be passed by affirmative resolution in the first instance and not that that should be the normal procedure in relation to subsequent regulations. I have looked at the draft regulations and again pay tribute to the Government for providing them in advance of the passage of the Bill; that is important. I am somewhat tempted to make a revolutionary proposal--not normally the case in the Conservative Party since our object normally speaking is to conserve. However, even if Amendment No. 40 were to be accepted, it would involve only a brief debate on the regulations automatically as opposed to what would happen if the matter was pressed sufficiently on the negative resolution procedure. Even so, it would be a brief debate and there would be no opportunity for amending the regulations. That has always seemed to me--I say this in a non-partisan sense--to be a serious deficiency in our proceedings.

This is a revolutionary proposal. But let us take, for example, the matter we were discussing earlier where there was, to say the least, some confusion between what the regulation appeared to say and what the Government said from the Dispatch Box. The Government kindly said that they would go away and look at the matter again. Of course we accept that in good faith, but at the end of the day, it will be the Government's decision as to whether or not they change the draft regulations. There is no way in which this Chamber or the other place can amend the regulations. It is essentially in the hands of the Government.

When we study these regulations, which run to many pages albeit with a brief explanatory note on the back, if we try to trace them through we need only to look at page 6--I am glad to see that these regulations have numbered pages--to see a huge list of other regulations to which they refer. Although I have always understood that parliamentary draftsmen are paid far more than Permanent Secretaries, and they have ploughed all the way through it, there may well be points where even those who are as inexpert in these matters as I am may find provisions they would like to amend. Alas, we are not able to do that unless on Report we write into the Bill draft amendments which could be further amended at Third Reading. I am not threatening to do that at this point, although it would be interesting to see whether or not it works.

At the least I would have hoped that the moderate amendment, nothing like as controversial as that I have just been discussing, proposed by the noble Lord, Lord Goodhart, which restricts debate to the first occasion when the regulations are debated, should be accepted. Otherwise, other than dragging in the regulations on a sidewind in debates on this Bill, there is no real opportunity for us to examine them in any detail.